Courts Deny Government Unions An Opportunity for Revenue

Editor’s Note:  As documented in two recent California Policy Center studies, “Examining Public Pay in California: The Los Angeles Department of Water and Power, and “Alameda County Water District Rate Increase Driven by Labor Costs, Not Drought,” no crisis, including a drought, is missed when it comes to seizing opportunities to increase revenue in order to increase pay and benefits for a unionized government workforce. But even when you’re losing the war against the relentless and insatiable appetite of these government unions for taxpayer money, sometimes you still win a battle. Here’s a report on one such victory.

Last week the California Court of Appeal issued an important ruling interpreting Proposition 218, the Howard Jarvis Taxpayers Association sponsored initiative approved by voters in 1996. Proposition 218 is entitled “The Taxpayers Right to Vote Act” for a very good reason. It reflects the policy that those who pay the bills for public expenditures – taxpayers – should have the final say over how much is taken out of their wallets and pocketbooks. It subjects virtually all local taxes and fees, especially those related to property, to voter or ratepayer control.

Proposition 218 was necessary because the legislature and the courts had created loopholes in Proposition 13, the iconic California initiative that started the modern American tax revolt in 1978. While Proposition 13 was focused on property taxes, Proposition 218 was drafted to limit the explosion in other types of government exactions burdening homeowners including so-called “benefit assessments,” fees, charges and other sorts of property related levies.

What is important to note about Proposition 218, is that it did not ban property related fees but, rather, sought to return the imposition of fees like water, sewer and trash collection rates to the traditional concept of “cost of service.” Cost of service simply means what it says: The cost to a property owner for a service should not exceed government’s cost to provide that service.

In its ruling, the Court of Appeal concluded that “tiered” water rates, without being justified under “cost of service” principals, failed to comply with the constitutional mandates of Proposition 218. The lawsuit was brought by the Capistrano Taxpayers Association against the City of San Juan Capistrano for, among other transgressions, imposing water rates that were “tiered,” meaning those who used more water would be charged a higher amount per gallon.

The court ruling was immediately condemned by water agencies, state bureaucrats and even Governor Jerry Brown who decried the decision as putting a “straightjacket” on his policies to enforce water conservation. But the ruling did nothing of the sort. First, rather than saying all tiered water rates were automatically unconstitutional, the court merely stated that, whatever the methodology used to impose water rates, they must be based on cost of service.

The sin of San Juan Capistrano was its failure to justify its rate structure at all.

Second, local governments have an array of tools available to enforce conservation to deal with California’s current water shortage. Limiting landscape watering to once or twice a week; prohibitions against hosing down driveways or automobiles; rebates to homeowners and businesses to convert landscape to drought tolerate plants; water reclamation; desalinization, such as the massive new project in San Diego County; and the list goes on and on.

So if water agencies have sufficient – and legal – tools available to them to incentivize conservation and deter waste, what is the basis for the shrill, over-the-top reaction to the Court of Appeal decision? Simple. If these agencies are permitted to impose water rates divorced from “cost of service” principles, then they can generate taxpayer funds over their costs and make a “profit” from homeowners – something Proposition 218 was specifically drafted to prevent.

And in the case of Jerry Brown, he didn’t like the ruling because he is desperately searching for a revenue source for his ill-conceived “Twin Tunnels” project which, like his High Speed Rail debacle, simply isn’t ready for prime time.

There is an object lesson here. Droughts may be caused by Mother Nature, but water shortages are created by humans. California is now paying the price for not building new storage and conveyance infrastructure over the last several decades. Rather than complaining about “cost of service” requirements that are founded in common sense and rational policy, California should immediately correct the dereliction of prior political leaders and build what we need for a California in the 21st century.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.